An 'Accessibility Index', developed by the Royal Institution of Chartered Surveyors (RICS) has found that the cost of becoming a home purchaser in Great Britain deteriorated by 8.4% in the year to the second quarter of 2007 and has worsened by around 350% since the most accessible point in 1996.
A first time buyer couple, both on lower quartile earnings (£26,667), will now have to save up to the equivalent of 96% of joint take-home pay, to build up the £25,600 needed for up front buying costs on a typical home, deposit and stamp duty. This equates to a substantial rise from the low point of 21% required in 1996.
Affordability has deteriorated to almost record levels. A couple on lower quartile income now has to spend 44% (up from 38% in Q1 2007) of their combined take home pay to service their mortgage, only 4% below the all-time high of 48% in Q1 1990.
In London, the South East and South West, couples have to save over 100% of their combined take-home pay to reach the levels necessary to get a foothold on the property ladder. However, in Yorkshire and Humberside and in the North West of England couples need only save 73% of their combined income to access the market.
London is also the region with the worst affordability levels, first time buyer households have to spend the highest proportion (51%) of their after tax income on mortgage payments compared to only 33% in Yorkshire and Humberside.
RICS senior economist David Stubbs said: "First time buyers are facing an enormous struggle to access the housing market. This may worsen if the turmoil in the US market forces mortgage providers to tighten lending criteria and demand even higher deposits. Even if prospective first time buyers make it onto the market, they face mortgage payments which take up a higher%age of their take home pay than at any time since 1990. House prices have risen by over 11% a year since 1996 whereas first time buyer incomes have only risen by 3.5% a year. This has forced buyers to borrow ever greater amounts and now higher interest rates are applying pressure to the household finances of recent buyers. However, affordability pressures may be nearing a peak. With house price growth expected to be below earnings growth in 2008, and with possible interest rate cuts in the second half of that year, the burden on first time buyers may lesson somewhat. But the present difficulties of first time buyers will remain a feature of British society for many years."
